I would find it terrifying for the same reason I generally dislike naming children after any specific person; I wouldn't want that child to be saddled with a name that reflected my own failures and poor choices. I want that child to have their own name to attribute their failures and poor choices to.

You mentioned that she changed her name at the same time she was officially adopted into the family. Perhaps this is her way of symbolizing that she is a part of the 'forever family' - choosing a name that connects herself to her grandfather (her now 'forever mother's or father's' father) she is creating a bond that reaches into the past, establishing family roots.

I think if I was in your shoes, I would be livid. Mainly because she didn't ask for my permission so I didn't get the chance to tell her no (but I'm also not named after anyone, I would have hated to have been named after anyone). I don't want anyone to be named after me. Period. Not my children, not my children children's etc... my name is mine. I hate the whole idea of honoring, it takes away from the uniqueness of the name. (this is all just my opinion)

You are entitled to feel however you wish especially since you were not consulted. However, I would feel honored if someone named their child after me or even because they heard my name because of me and liked it. I don't feel that my name needs to belong to me and me only.